diff --git a/contrib/kind-helm.sh b/contrib/kind-helm.sh
index 084a3f43ace..0d602a33f79 100755
--- a/contrib/kind-helm.sh
+++ b/contrib/kind-helm.sh
@@ -32,7 +32,7 @@ set_default_params() {
   export KUBECONFIG=${KUBECONFIG:-${HOME}/${KIND_CLUSTER_NAME}.conf}
 
   # Validated params that work
-  export MASQUERADE_SUBNET_IPV4=${MASQUERADE_SUBNET_IPV4:-169.254.0.0/16}
+  export MASQUERADE_SUBNET_IPV4=${MASQUERADE_SUBNET_IPV4:-169.254.0.0/17}
   export MASQUERADE_SUBNET_IPV6=${MASQUERADE_SUBNET_IPV6:-fd69::/112}
 
   # Input not currently validated. Modify outside script at your own risk.
diff --git a/contrib/kind.sh b/contrib/kind.sh
index b92481fefa0..469e1191c53 100755
--- a/contrib/kind.sh
+++ b/contrib/kind.sh
@@ -548,7 +548,7 @@ set_default_params() {
   SVC_CIDR_IPV6=${SVC_CIDR_IPV6:-fd00:10:96::/112}
   JOIN_SUBNET_IPV4=${JOIN_SUBNET_IPV4:-100.64.0.0/16}
   JOIN_SUBNET_IPV6=${JOIN_SUBNET_IPV6:-fd98::/64}
-  MASQUERADE_SUBNET_IPV4=${MASQUERADE_SUBNET_IPV4:-169.254.0.0/16}
+  MASQUERADE_SUBNET_IPV4=${MASQUERADE_SUBNET_IPV4:-169.254.0.0/17}
   MASQUERADE_SUBNET_IPV6=${MASQUERADE_SUBNET_IPV6:-fd69::/112}
   TRANSIT_SWITCH_SUBNET_IPV4=${TRANSIT_SWITCH_SUBNET_IPV4:-100.88.0.0/16}
   TRANSIT_SWITCH_SUBNET_IPV6=${TRANSIT_SWITCH_SUBNET_IPV6:-fd97::/64}
diff --git a/go-controller/pkg/generator/udn/masquerade_ips.go b/go-controller/pkg/generator/udn/masquerade_ips.go
index ffb31393679..99ff461bef3 100644
--- a/go-controller/pkg/generator/udn/masquerade_ips.go
+++ b/go-controller/pkg/generator/udn/masquerade_ips.go
@@ -46,7 +46,7 @@ func allocateMasqueradeIPs(idName string, masqueradeSubnet string, networkID int
 		return nil, fmt.Errorf("failed initializing generation of network id '%d' %s IPs: %w", networkID, idName, err)
 	}
 	// Let's illustrate the expected IPs for networkID 1 and 2
-	// with userDefinedNetworkMasqueradeIPBase=10 and subnet=169.254.0.0/16
+	// with userDefinedNetworkMasqueradeIPBase=10 and subnet=169.254.0.0/17
 	// networkID=1
 	//  GatewayRouter: 169.254.0.11
 	//  ManagementPort: 169.254.0.12
diff --git a/go-controller/pkg/generator/udn/masquerade_ips_test.go b/go-controller/pkg/generator/udn/masquerade_ips_test.go
index 229a89c5e84..d156dbfb049 100644
--- a/go-controller/pkg/generator/udn/masquerade_ips_test.go
+++ b/go-controller/pkg/generator/udn/masquerade_ips_test.go
@@ -22,14 +22,14 @@ func TestAllocateMasqueradeIPs(t *testing.T) {
 		{
 			description: "with proper network id 2 should return expected subnets",
 			networkID:   2,
-			subnet:      "169.254.0.0/16",
-			expectedIPs: masqueradeIPs{GatewayRouter: "169.254.0.13/16", ManagementPort: "169.254.0.14/16"},
+			subnet:      "169.254.0.0/17",
+			expectedIPs: masqueradeIPs{GatewayRouter: "169.254.0.13/17", ManagementPort: "169.254.0.14/17"},
 		},
 		{
 			description: "with proper network id 3 should return expected subnets",
 			networkID:   3,
-			subnet:      "169.254.0.0/16",
-			expectedIPs: masqueradeIPs{GatewayRouter: "169.254.0.15/16", ManagementPort: "169.254.0.16/16"},
+			subnet:      "169.254.0.0/17",
+			expectedIPs: masqueradeIPs{GatewayRouter: "169.254.0.15/17", ManagementPort: "169.254.0.16/17"},
 		},
 		{
 			description:   "with one of the two address beyond the subne should return an error",